Workings of North Korea’s Illegal Foreign Currency Transactions

In 2017, the international financial communications platform SWIFT, Society for Worldwide Interbank Financial Telecommunication, disconnected the last four remaining North Korean banks on its system as part of the international community’s efforts to curb the Democratic People’s Republic of Korea’s (DPRK or North Korea) growing nuclear and missile programs. Despite being expelled from the global banking system, however, North Korea has still managed to find ways to bring hard currency into the country.

The DPRK has resorted to a variety of tactics, from the more traditional methods like dumping coal, minerals, and sand camouflaged as trash, using diplomatic pouches, and utilizing currency exchange counters, to using legal and illegal Chinese bank accounts to ensure cash flows into the country. In all cases, China stands at the heart of North Korea’s illicit money laundering and transfer activities. In that vein, the international community should continue to remind China of its obligations as a responsible player on the global stage that it purports to be and persuade Beijing to enforce sanctions against Pyongyang.

How North Korea Earns Foreign Currency—and Brings It Home

This section introduces three main cases of how North Korea earns foreign currency and the methods by which the country brings the money back home.

Case One: Smuggling

Smuggling coal and minerals remains North Korea’s top source of illegal income. The country reportedly earned approximately $2.15 billion from 2017 to 2023 through this activity. A widely known smuggling method involves North Korea working with Chinese business people to fake documents or tamper with ship tracking systems to hide their location. But there are also lesser-known tactics at work.

One primary example is how the DPRK and China collaborate to bring North Korean coal and minerals into China. Coal from North Korea, mostly anthracite, makes up approximately nine percent of China’s total coal imports. North Korean coal is known for its quality and low price, and China accounts for more than 50 percent of the world’s total coal demand. This explains China’s need for North Korea’s coal.

North Koreans forge deals with Chinese smugglers that enable them to dump coal or minerals, camouflaged as trash, on a small island near the China-DPRK border on the Yalu River. Chinese smugglers then pick them up and take them into China almost every day. The Chinese pay North Korea in yuan or dollars, allowing them to buy supplies cheaply while avoiding taxes.

It is important to note the extent to which the Chinese government enables and facilitates money laundering. Under China’s “Measures for the Administration of Border Trade Foreign Exchange Management,” there is no Chinese government oversight on how much cash flows into North Korea as part of border trade as long as Chinese business representatives can prove that transactions were conducted in yuan. This institutional system, in short, facilitates money laundering for both China and North Korea.

Case Two: Overseas Workers

Another major source of income for North Korea is by sending workers abroad. In doing so, the country is estimated to have earned approximately $1.75 billion from 2017 to 2023. Following United Nations (UN) Resolution 2397, passed in December 2017, countries that employed North Korean workers had to send them back within 24 months (December 2019). As a result, 42 nations, including Mongolia, Kuwait, and Nepal, returned about 23,200 North Korean workers.

However, according to the final report of the UN Panel of Experts on North Korea, published in March 2024, more than 100,000 North Korean laborers are still working in approximately 40 countries. According to the Seoul-based Institute For National Security Strategy, wages vary depending on the sector and country, but North Korean information technology (IT) workers in China earn approximately $3,000 to $3,500 a month. More than 70 or 80 percent of their wages, however, are taken by the North Korean authorities.

How is this money sent back to North Korea, then?

Diplomatic pouches are the most common method. These pouches are sent directly to Pyongyang or Beijing, and can be taken advantage of because they are exempt from inspections under the Vienna Convention on Diplomatic Relations.

The second most commonly used method involves using borrowed accounts. This method involves transferring money to North Korea using a third party’s Chinese name.

The DPRK also uses currency exchange counters. A North Korean worker sends money through a local exchange counter. The money is then transferred to an exchange center in Beijing. There, another North Korean collects the money and takes it to the embassy. This was a popular method until 2019 but has since become less common because many currency exchange counters impose high transfer fees on transactions involving North Korea. Consequently, their usage has been limited to absolutely necessary occasions. Despite the exorbitant fees, however, North Korea may resort to this tactic again if needed.

Case Three: Cyber Theft

North Korea made approximately $1.35 billion between 2017 and 2023 by hacking and cashing out virtual assets around the world. This is an enormous amount for North Korea, whose annual exports amounted to only about $82 million in 2021.

Laundering cash through banks or brokers is costly and risks international sanctions. On the other hand, virtual assets are anonymous, easy to transfer, and ideal for money laundering, which is why North Korea now favors hacking cryptocurrency.

In 2022, global losses from crypto hacking amounted to $3.8 billion. North Korean hackers were responsible for $1.7 billion of that total. However, North Korea was unable to convert all of the stolen $1.7 billion into cash due to international sanctions. Yet, they managed to convert a small portion of that amount into cash, which was then laundered through mixers and cross-chain bridges. It is estimated that a significant portion of that money has successfully reached North Korea.

The North Korean IT workforce’s skill sets have advanced rapidly after a 2007 agreement with China, under which China provided North Korea with computers, gave training, and shared relevant technology. This bilateral China-DPRK cooperation has played a pivotal role in advancing North Korea’s illicit cyber activities.

China recognized the rising utility and importance of digital currencies more than a decade ago and has been pursuing strategies to integrate more as a medium of exchange in international transactions. For example, the United Kingdom (UK) holds the third largest bitcoin reserve after the United States and China. Most of the UK’s bitcoins, however, came from a Chinese individual who was convicted in the UK of laundering a portion of the proceeds she obtained from bitcoin fraud committed between 2017 and 2022. Moreover, as China has tried to ban bitcoin in recent years, it has introduced its own digital yuan. Regardless of specific form, however, this move toward digital currencies is likely a lesson it has passed on to its partners, such as North Korea.

Additional Laundering and Remittance Tactics

The DPRK also launders money using virtual accounts in regular Chinese banks.[1] These accounts are not subject to the real-name rule; thus, China does not track who sends the money, which is directly transferred to the account user.

If North Koreans open virtual accounts under fake or third-party Chinese names, it becomes very difficult for the international community to trace transactions conducted through such accounts. Chinese banks launched the virtual accounts system to simplify online payments and facilitate financial transactions for businesses and customers. However, this system has been abused due to the obvious loopholes.

Another tactic by which North Koreans launder and remit money is through underground banks in China, also called shadow finance. The lack of transparency in China’s underground banking system makes it challenging for the global community to trace money transfers between China and North Korea.

Shadow finance takes form in two simple ways.

First, North Koreans team up with Chinese brokers to use fake Chinese names to set up accounts at underground banks like rural cooperatives. They then receive illegal money in these accounts from in or outside China. North Koreans, pretending to be Chinese, withdraw the cash, saying it is for investment, and hand it over to North Korean officials. They use this method because China’s financial messaging network does not allow money to be transferred directly to North Korea. This means all financial transactions with North Korea must be made in cash. Furthermore, small offices or teams of people acting as North Korean branches of these illegal banks help move money to North Korea. These funds are very difficult for the international community and even China itself to trace.

Second, North Koreans living abroad transfer money to bank accounts in China and then inform Chinese brokers of the transfer details. After verifying this information, Chinese brokers bypass the Chinese banking system and hand over their own cash directly to the intended North Korean recipients near the border or inside North Korea. The brokers then withdraw that same amount from the North Koreans’ Chinese accounts. In return for their services, they receive some perks for conducting North Korean-related business. This way of moving money is similar to old-school currency swapping, but without any charges, and because Chinese brokers handle cash, it is almost impossible to trace.

Conclusion

In March 2024, Russia vetoed a UN Security Council resolution to extend the North Korea UN Panel of Experts’ mandate for another year, shutting down the 15-year-old Panel.

The loss of this international, relatively neutral, authoritative investigatory body will make it harder for the international community to track North Korea’s sanctions evasions and other types of illegal activities, especially in gaining the kind of global cooperation needed to conduct in-depth investigations. To fill this gap, the Multilateral Sanctions Monitoring Team (MSMT), consisting of 11 nations, including the United States, South Korea, Japan, France, the UK, and Germany, was launched in October 2024. Without the UN’s official support, however, there are questions about how effective this team can truly be in achieving its goal, or whether it will have the authority that the Panel enjoyed.

Under the MSMT’s leadership, monitoring North Korea’s illegal ship-to-ship transfers and financial activities is critical and requires targeted measures. While the US Treasury’s FinCEN (Financial Crimes Enforcement Network) tracks North Korea’s cyber hacking, fully stopping these activities demands global cooperation and direct action from China.

On that note, China’s active role is essential to effectively enforce sanctions against North Korea, curb Pyongyang’s illegal activities, and guide it toward a better path. Continued dialogue with China is key to these efforts. If China seeks to position itself as a genuine leader on the global stage, it must take responsibility and act decisively on these issues.

1. [1]

   Based on the author’s conversation with a reliable Chinese lawyer in 2023.